Many of us know about CMHC mortgage insurance; and those of us that do are either trying to find a way out of paying it, or are hoping that we never have to. But on Tuesday, the Canada Mortgage and Housing Corporation issued a statement to all major banks in Canada, saying that they were nearing the maximum level of housing insurance they could offer. So does this spell bad news for homeowners?
The Canadian government requires that homeowners that do not have the minimum 20% down payment that’s required to buy a home, purchase mortgage insurance to protect the bank should the homeowner default on the loan. It’s the Canadian government in turn, that provides funding to the CMHC in order to be able to cover the defaults. The government places a cap on how much money CMHC can offer, and that amount is currently $600 billion dollars. At the end of last year, the government agency announced that they were almost at $541 billion and this announcement made on Tuesday suggests that they are even closer than that.
So what will this do to the housing market, and will homeowners unable to make a 20% down payment simply be out of luck?
The last scenario is unlikely, although many do feel as though this news could cool the housing market some, and at a time when it could use it the most, with the recent flooding from historically low interest rates. Should CMHC reach their cap though, it could keep a lot of homeowners or potential homeowners out of the market. Some could still find private mortgage insurance, of which there are currently very few insurers in Canada; or the Canadian government could raise the imposed cap on CMHC. This latter scenario is something that’s happened in the past when the cap was raised to its current $6 billion mark from $450 billion. Either way, the government is confident that consumers, homeowners, and home buyers won’t be the one to feel the pinch.
What do you think will happen as CMHC comes even closer to its cap, and eventually reaches it? Do you think the Canadian government will simply raise the cap? Or do you think they’ll take the chance to cool down the housing market by making it even harder to get a mortgage?
